‘Waterfall Cash Flow’ refers to a structured payment priority scheme that dictates the sequential distribution of available cash flows to various stakeholders or tranches within a financial structure. Payments are made in a specific order, where higher-priority obligations must be satisfied in full before lower-priority ones receive any distribution. In crypto, this is pertinent for structured finance products, decentralized lending protocols, or revenue distribution models for tokenized assets, ensuring clear payment hierarchies and risk allocation.
Mechanism
The mechanism is typically codified in smart contracts or legal agreements, defining precise conditions and priorities for cash distribution. For a crypto-backed loan, interest and principal payments might first go to senior lenders, then to junior lenders, and finally to equity holders. Automated systems or smart contracts monitor incoming cash flows and, upon reaching predefined thresholds or dates, execute payments according to the strict, predetermined sequence, ensuring transparency and immutability of the distribution process.
Methodology
The strategic methodology for designing ‘Waterfall Cash Flow’ structures in crypto
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